Time Cost Tradeoff

8/20/2019 Time Cost Tradeoff

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Construction Management 164 Dr. Emad Elbeltagi

CHAPTER 8

PROJECT TIME-COST TRADE-OFF

In the previous chapters, duration of activities discussed as either fixed or random

numbers with known characteristics. However, activity durations can often vary

depending upon the type and amount of resources that are applied. Assigning more

workers to a particular activity will normally result in a shorter duration. Greater speed

may result in higher costs and lower quality, however. In this section, we shall consider

the impacts of time and cost trade-offs in activities.

Reducing both construction projects’ cost and time is critical in today’s market-driven

economy. This relationship between construction projects’ time and cost is called time-

cost trade-off decisions, which has been investigated extensively in the construction

management literature. Time-cost trade-off decisions are complex and require selection

of appropriate construction method for each project task. Time-cost trade-off, in fact, is

an important management tool fo overcoming one of the critical path method limitations

of being unable to bring the project schedule to a specified duration.

8.1 Time-Cost Trade-Off

The objective of the time-cost trade-off analysis is to reduce the original project duration,

determined form the critical path analysis, to meet a specific deadline, with the least cost.

In addition to that it might be necessary to finish the project in a specific time to:

- Finish the project in a predefined deadline date.

- Recover early delays.

- Avoid liquidated damages.

- Free key resources early for other projects.


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- Avoid adverse weather conditions that might affect productivity.

- Receive an early completion-bonus.

- Improve project cash flow

Reducing project duration can be done by adjusting overlaps between activities or by

reducing activities’ duration. What is the reason for an increase in direct cost as the

activity duration is reduced? A simple case arises in the use of overtime work. By

scheduling weekend or evening work, the completion time for an activity as measured in

calendar days will be reduced. However, extra wages must be paid for such overtime

work, so the cost will increase. Also, overtime work is more prone to accidents and

quality problems that must be corrected, so costs may increase. The activity duration can

be reduced by one of the following actions:

- Applying multiple-shifts work.

- Working extended hours (over time).

- Offering incentive payments to increase the productivity.

- Working on week ends and holidays.

- Using additional resources.

- Using materials with faster installation methods.

- Using alternate construction methods or sequence.

8.2 Activity Time-Cost Relationship

In general, there is a trade-off between the time and the direct cost to complete an

activity; the less expensive the resources, the larger duration they take to complete an

activity. Shortening the duration on an activity will normally increase its direct cost

which comprises: the cost of labor, equipment, and material. It should never be assumed

that the quantity of resources deployed and the task duration are inversely related. Thus

one should never automatically assume that the work that can be done by one man in 16

weeks can actually be done by 16 men in one week.


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A simple representation of the possible relationship between the duration of an activity

and its direct costs appears in Figure 8.1. Considering only this activity in isolation and

without reference to the project completion deadline, a manager would choose a duration

which implies minimum direct cost, called the normal duration. At the other extreme, a

manager might choose to complete the activity in the minimum possible time, called

crashed duration, but at a maximum cost.

Figure 8.1: Illustration of linear time/cost trade-off for an activity

The linear relationship shown in the Figure 8.1 between these two points implies that anyintermediate duration could also be chosen. It is possible that some intermediate point

may represent the ideal or optimal trade-off between time and cost for this activity. The

slope of the line connecting the normal point (lower point) and the crash point (upper

point) is called the cost slope of the activity. The slope of this line can be calculated

mathematically by knowing the coordinates of the normal and crash points.

Cost slope = crash cost – normal cost / normal duration – crash duration

As shown in Figures 8.1, 8.2, and 8.3, the least direct cost required to complete an

activity is called the normal cost (minimum cost), and the corresponding duration is

called the normal duration. The shortest possible duration required for completing the

activity is called the crash duration, and the corresponding cost is called the crash cost.

Normally, a planner start his/her estimation and scheduling process by assuming the least

costly option

Normal duration&

Normal cost

Crash duration

&

Crash cost

Time

Cost


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Figure 8.2: Illustration of non-linear time/cost trade-off for an activity

Figure 8.3: Illustration of discrete time/cost trade-off for an activity

Example 8.1

A subcontractor has the task of erecting 8400 square meter of metal scaffolds. The

contractor can use several crews with various costs. It is expected that the production will

vary with the crew size as given below:

Crash duration

&

Crash cost

Time

Cost

Normal duration&

Normal cost

Normal duration&

Normal cost

Crash duration&

Crash cost

Time

Cost


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Estimated daily production

(square meter)

Crew

size(men)

Crew formation

166

204

230

5

6

7

1 scaffold set, 2 labors, 2 carpenter, 1 foreman



Consider the following rates: Labor LE96/day; carpenter LE128/day; foreman LE144/day

and scaffolding LE60/day. Determine the direct cost of this activity considering different

crews formation.

Solution

The duration for installing the metal scaffold can be determined by dividing the total

quantity by the estimated daily production. The cost can be determined by summing up

the daily cost of each crew and then multiply it by the duration of using that crew. The

calculations are shown in the following table.

Crew size Duration (days) Cost (LE)

5

6

7

50.6 (use 51)

41.2 (use 42)

36.5 (use 37)

51 x (1x60 + 2x96 + 2x128 + 1x144) = 33252

42 x (2x60 + 3x96 + 2x128 + 1x144) = 33936

37 x (2x60 + 3x96 + 3x128 + 1x144) = 34632

This example illustrates the options which the planner develops as he/she establishes the

normal duration for an activity by choosing the least cost alternative. The time-cost

relationship for this example is shown in Figure 8.4. The cost slop for this activity can be

calculates as follow:

Cost slope 1 (between points 1 and 2) = (33936 – 33252) / (51 – 42) = 76.22 LE/day

Cost slope 2 (between points 2 and 3) = (34632 – 33936) / (42 – 37) = 139.2 LE/day


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Figure 8.5: Project time-cost relationship

The project total time-cost relationship can be determined by adding up the direct cost

and indirect cost values together as shown in Figure 8.5. The optimum project duration

can be determined as the project duration that results in the least project total cost.

8.4 Shortening Project Duration

The minimum time to complete a project is called the project-crash time. This minimum

completion time can be found by applying critical path scheduling with all activity

durations set to their minimum values. This minimum completion time for the project can

then be used to determine the project-crash cost. Since there are some activities not on the

critical path that can be assigned longer duration without delaying the project, it is

advantageous to change the all-crash schedule and thereby reduce costs.

Heuristic approaches are used to solve the time/cost tradeoff problem such as the cost-

lope method used in this chapter. In particular, a simple approach is to first apply critical

path scheduling with all activity durations assumed to be at minimum cost. Next, the

planner can examine activities on the critical path and reduce the scheduled duration of

activities which have the lowest resulting increase in costs. In essence, the planner

develops a list of activities on the critical path ranked with their cost slopes. The heuristic

solution proceeds by shortening activities in the order of their lowest cost slopes. As the

Project duration

Project cost


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duration of activities on the shortest path are shortened, the project duration is also

reduced. Eventually, another path becomes critical, and a new list of activities on the

critical path must be prepared. Using this way, good but not necessarily optimal

schedules can be identified.

The procedure for shortening project duration can be summarized in the following steps:

1. Draw the project network.

2. Perform CPM calculations and identify the critical path, use normal durations and

costs for all activities.

3. Compute the cost slope for each activity from the following equation:

cost slope = crash cost – normal cost / normal duration – crash duration

4. Start by shortening the activity duration on the critical path which has the least cost

slope and not been shortened to its crash duration.

5. Reduce the duration of the critical activities with least cost slope until its crash

duration is reached or until the critical path changes.

6. When multiple critical paths are involved, the activity(ies) to shorten is determined

by comparing the cost slope of the activity which lies on all critical paths (if any),

with the sum of cost slope for a group of activities, each one of them lies on one of

the critical paths.

7. Having shortened a critical path, you should adjust activities timings, and floats.

8. The cost increase due to activity shortening is calculated as the cost slope

multiplied by the time of time units shortened.

9. Continue until no further shortening is possible, and then the crash point is reached.

10. The results may be represented graphically by plotting project completion time

against cumulative cost increase. This is the project direct-cost / time relationship.

By adding the project indirect cost to this curve to obtain the project time / cost

curve. This curve gives the optimum duration and the corresponding minimum

cost.


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Example 8.2

Assume the following project data given in Table 8.1. It is required to crash the project

duration from its original duration to a final duration of 110 days. Assume daily indirect

cost of LE 100.

Table 8.1: Data for Example 8.2

Normal CrashActivity Preceded by

Duration (day) Cost (LE) Duration (day) Cost (LE)

A

BC

D

E

F

-

-B

C

D, F

B

120

2040

30

50

60

12000

180016000

1400

3600

13500

100

1530

20

40

45

14000

280022000

2000

4800

18000

Solution

The cost slope of each activity is calculated. Both the crashability and the cost slope are

shown beneath each activity in the precedence diagram. The critical path is B-C-D-E and

the project duration in 140 days. Project total normal direct cost = sum of normal direct

costs of all activities = LE 48300.

1. The activity on the critical path with the lowest cost slope is of activity “D”, this

activity can be crashed by 10 days. Then adjust timing of the activities.

C (40)

20 60

20 60

End (0)

140 140

140 140

E (50)

90 140

90 140

A (120)

20 140

0 120

Start (0)

0 0

0 0

B (20)

0 20

0 20

D (30)

60 90

60 90

F (60)

30 90

20 80

20@100

10@600

5@200

10@60

15@300

10@120


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A new critical path will be formed, B-F-E.

New Project duration is 130 days.

The project direct cost is increased by 10 x 60 = LE 600.

Project direct cost = 48300 + 600 = LE 48900

2. At this step activity “E” will be crashed, as this activity lies on both critical paths.

Activity “E” will be shortened by 10 days.

Accordingly, all activities will b turn to critical activities.


The project direct cost is increased by 10 x 120 = LE 1200.

Project direct cost = 48900 + 1200 = LE 50100

C (40)

20 60

20 60

End (0)

130 130

130 130

E (50)

80 130

80 130

A (120)

10 130

0 120

Start (0)

0 0

0 0

B (20)

0 20

0 20

D (20)

60 80

60 80

F (60)

20 80

20 80

20@100

10@600

5@200 15@300

10@120

C (40)

20 60

20 60

End (0)

120 120

120 120

E (40)

80 120

80 120

A (120)

0 120

0 120

Start (0)

0 0

0 0

B (20)

0 20

0 20

D (20)

60 80

60 80

F (60)20 80

20 80

20@100

10@600

5@200 15@300


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3. In this step, it is difficult to decrease one activity’s duration and achieve decreasing in

the project duration. So, either to crash an activity on all critical paths (if any),

otherwise, choose several activities on different critical paths. As shown, activities

“A” and “B” can be crashed together which have the least cost slope (100 + 200).

Then, crash activities “A” and “B” by 5 days.


The project direct cost is increased by 5 x (100 + 200) = LE 1500.Project direct cost = 50100 + 1500 = LE 51600

4. In this final step, it is required to decrease the duration of an activity from each path.

The duration of activity ”A” will be crashed to 110 days, “C” to 35 days, and “F” to

55 days. Thus, achieving decreasing project duration to 110 days. Also, increase in

the project direct cost by 5 x (100 + 600 + 300) = LE 5000

C (40)

15 55

15 55

End (0)

115 115

115 115

E (40)

75 115

75 115

A (115)

0 115

0 115

Start (0)

0 0

0 0

B (15)

0 15

0 15

D (20)

55 75

55 75

F (60)

15 75

15 75

15@100

10@600

15@300

C (35)

15 50

15 50

End (0)

110 110

110 110

E (40)

70 110

70 110

A (110)

0 110

0 110

Start (0)

0 0

0 0

B (15)

0 15

0 15

D (20)

50 70

50 70

F (55)

15 70

15 70

10@100

5@600

10@300


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0

10000

20000

30000

40000

50000

60000

70000

80000

100 110 120 130 140 150

Project duration (days)

C o s t ( L E )

Duration (days) Direct cost (LE) Indirect cost (LE) Total cost (LE)

140

130

120

115

110

48300

48900

50100

51600

56600

14000

13000

12000

11500

11000

62300

61900

62100

63100

67600

Example 8.3

The durations and direct costs for each activity in the network of a small construction

contract under both normal and crash conditions are given in the following table.

Establish the least cost for expediting the contract. Determine the optimum duration of

the contract assuming the indirect cost is LE 125/day.

Solution


shown beneath each activity in the precedence diagram. The critical path is A-C-G-I and

the contract duration in 59 days.


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Table 8.2: Data for Example 8.3

Normal Crash

Activity Preceded by Duration (day) Cost (LE) Duration (day) Cost (LE)

A

B

C

D

E

F

G

H

I

-

A

A

B

B

C

E, C

F

D, G, H

12

8

15

23

5

5

20

13

12

7000

5000

4000

5000

1000

3000

6000

2500

3000

10

6

12

23

4

4

15

11

10

7200

5300

4600

5000

1050

3300

6300

2580

3150

Solution


shown beneath each activity in the precedence diagram. The critical path is A-C-G-I and

the contract duration in 59 days.

1. The activity on the critical path with the lowest cost slope is “G”, this activity can

be crashed by 5 days, but if it is crashed by more than 2 days another critical path

will be generated. Therefore, activity “G” will be crashed by 2 days only. Then

adjust timing of the activities.

D (23)

24 47

20 43

I (12)

47 59

47 59

H (13)

34 47

32 45

F (5)

29 34

27 32

B (8)

14 22

12 20

A (12)

0 12

0 12

C (15)

12 27

12 27

E (5)

22 27

20 25

G (20)

27 47

27 47

2@40

2@100 1@502@150

3@200

5@60

1@300

2@75


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A new critical path will be formed, A-C-F-H-I. New contract duration is 57 days and the cost increase is 2 x 60 = LE 120.

2. At this step the activities that can be crashed are listed below:

Either “A” at cost LE 100/day

Or “C” at cost LE 200/day

Or “I” at cost LE 75/day

Or “F & G” at cost LE 360/day

Or “H & G” at cost LE 100/ day

Activity “I” is chosen because it has the least cost slope, and it can be crashed by 2

days. Because it is last activity in the network, it has no effect on other activities.

New contract duration is 55 days and the cost increase is 2 x 75 = LE 150.

Cumulative cost increase = 120 + 150 = LE 270

D (23)

22 45

20 43

I (12)

45 57

45 57

H (13)

32 45

32 45

F (5)

27 32

27 32

B (8)

14 22

12 20

A (12)

0 12

0 12

C (15)

12 27

12 27

E (5)

22 27

20 25

G (18)

27 45

27 45

2@40

2@100 1@502@150

3@200

3@60

1@300

2@75

D (23)

22 45

20 43

I (10)

45 55

45 55

H (13)

32 45

32 45

F (5)

27 32

27 32

B (8)14 22

12 20

A (12)0 12

0 12

C (15)

12 27

12 27

E (5)22 27

20 25

G (18)27 45

27 45

2@40

2@100 1@502@150

3@200

3@60

1@300


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3. Now, we could select “A” or both “H & G”, because they have the same cost

slope. Activity “A” is chosen to be crashed. This will change the timings for all

activities, but no new critical path will be formed.


Accordingly, cumulative cost increase = 270 + 200 = LE 470

4. Now, activities “H & G” can be crashed by 2 days each. “A” new critical path A-

B-D-I will be formed.

New contract duration is 51 day and the cost increase is 2 x 100 = LE 200.

Accordingly, cumulative cost increase = 470 + 200 = LE 670

D (23)

20 43

18 41

I (10)

43 53

43 53

H (13)

30 43

30 43

F (5)

25 30

25 30

B (8)

12 20

10 18

A (10)

0 10

0 10

C (15)

10 25

10 25

E (5)

20 25

18 23

G (18)

25 43

25 43

2@40

1@502@150

3@200

3@60

1@300

D (23)

18 41

18 41

I (10)

41 51

41 51

H (11)

30 41

30 41

F (5)

25 30

25 30

B (8)

10 18

10 18

A (10)

0 10

0 10

C (15)

10 25

10 25

E (5)

20 25

18 23

G (16)

25 41

25 41

1@502@150

3@200

1@60

1@300


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5. At this stage, the network has three critical paths. The activities that can be

crashed are listed below:

Either C & B at cost LE 350/day or F, G & B at cost LE 510/day

Activities C & B are chosen because they have the least cost slope.


Cumulative cost increase = 670 + 700 = LE 1370

Now, there is no further shortening is possible.

The contract duration and the corresponding cost are given in the table below.

Duration Direct cost X 1000 LE Indirect cost x 1000 LE Total cost x 1000 LE

59 36.50 7.375 43.875

57 36.62 7.125 43.745

55 36.77 6.875 43.645

53 36.97 6.625 43.595

51 37.17 6.375 43.545

49 37.87 6.125 43.995

D (23)

16 39

16 39

I (10)

39 49

39 49

H (11)

28 39

28 39

F (5)

23 28

23 28

B (6)

10 16

10 16

A (10)

0 10

0 10

C (13)

10 3

10 23

E (5)

18 23

16 21

G (16)

23 39

23 39

1@50

1@200

1@60

1@300

0

10

20

30

40

50

48 50 52 54 56 58 60

Time (days)

L E x

1 0 0 0

Direct cost

Total cost

Indirect cost


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8.5 Exercises

1. The following table gives the activities involved in a pipeline contract. The

duration and cost data are also given. The indirect cost for the contract is

LE120/day. Calculate the minimum cost of the work corresponding to contract

duration of 102 days.

Normal Crashability Cost

SlopeAct. Description Predes.

Time Cost (days) (LE)

A Preparation --- 10 200 - -

B Move on to site A 20 200 - -

C Obtain pipes A 40 1800 - -

D Obtain valves A 28 500 8 10

E Locate pipeline B 8 150 - -

F Cut specials C 10 100 4 40

G Excavate trench E 30 3000 20 180

H Prepare valve chambers C, G 20 2800 12 50

I Layout joint pipes C, G 24 1000 10 65

J Fit valves D, F, H 10 200 4 80

K Concrete anchors I 8 520 1 80L Backfill J, K 6 420 1 60

M Finish valve chambers J, K 6 200 3 40

N Test pipeline J, K 6 150 2 70

O Clean up site L, N 4 300 - -

P Leave site M, O 2 180 - -

2. Cost and schedule data for a small project are given below. Assume an indirect

cost of LE 200/day. Develop the time-cost curve for the project and determine theminimum contract duration


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Cost (LE) Duration (days)Activity Preceded by

Crash Normal Crash Normal

A

B

C

D

E

F

G

H

I

-

A

B

B

B

C

F

E

D, G, H

3900

6500

7200

4900

2200

1700

7200

10000

4700

3600

5500

6350

4700

2050

1200

7200

9450

4500

6

3

7

18

9

6

5

10

6

7

5

9

19

10

8

5

11

7

3. Draw the precedence diagram for the following data.

Duration (days)

Activity Followed by

Normal Minimum

Cost slope

LE / day

A

BC

D

E

F

G

H

I

J

K

L

M

N

B, E, F

KH, D

I, N

G, M

L

C

I, N

-

E, F

G

M

C

-

7

98

11

9

8

7

6

12

10

14

18

9

12

5

57

4

6

7

5

2

9

8

10

16

8

9

200

450400

100

400

500

200

200

200

600

350

700

550

200

It is required to compress the schedule to a 65-day. How much more would the

project cost?

Time Cost Tradeoff

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